Pages

The Forces that will Push Silver Over $100

There are tremendous forces at work that will push silver over $100 an ounce.
According to the 2012 World Silver Survey, total global silver investment demand has risen from only 31.6 million oz in 2002 to a staggering 282.2 million oz in 2011. As world economic fiat based monetary system continues to deteriorate, investors are taking delivery of physical silver rather than holding on paper contracts that may not be backed by any metal whatsoever.

This has created a run on the LBMA… the largest metal exchange in the world.
Evidence of this can be seen by the huge increase of U.S. silver
bullion exports to the United Kingdom. In 2011, the U.S exported a mere
19 metric tonnes to London. However, in just four months (May-Aug), the U.S. has exported 291 metric tonnes to the LBMA vaults in the U.K..The United States has exported more silver bullion in the first seven months of the year than it did in all of 2011. Silver bullion shipped to the United Kingdom rose from 3% of total U.S. silver exports in 2011, to a staggering 42% of the 700 million oz exported so far this year.
More likely than not,
the large silver bullion exports to the U.K. have been utilized to help
meet the insatiable physical silver bullion demand taking place on the
LBMA.As the old saying goes… where there is smoke, there’s probably a great deal of silver paper on fire.Once
the world ‘s liquid energy supply starts its inevitable decline from
its current plateau, annual silver metal production will decline as
well. There
will be no silver glut and there will be no silver available when the
world’s fiat monetary system finally dries up and blows away.Get ready. The forces for pushing silver over $100 have just begun.

There are tremendous forces at work that will push silver over $100 an ounce.
Very few precious metal analysts understand all the forces that are at
work. Some analysts focus on specific areas such as the gold-silver
ratio and technical analysis, while others write about future investment
and industrial demand. And then of course, we have the more unorthodox
analysts who delve into the ongoing manipulation of gold and silver — a
realization shared by the author of this article.

However, one
of the most important aspects of silver that most analysts are
completely unaware is the availability (or lack of thereof) of future
silver mine supply. I am simply amazed how some analysts can
forecast lower silver prices due to a so-called future supply glut that
is supposedly coming in the next few years.

As I have mentioned
before in a previous article, analysts today are so specialized they
have no idea what is going on in another industry. It is highly
doubtful that the metal analysts who make these long term silver supply
forecasts really comprehend the details of the energy market and
industry. The
failure of these metal analysts to understand the complexity of the
global liquid supply system will render their future forecasts
completely inaccurate. This will be discussed at the latter part of the article as it is one of the longer term forces to impact silver.

Silver Surplus-Deficit Explained Again
There
still seems to be a misunderstanding about the so-called
surplus-deficit of silver. Some analysts are pointing to the fact that
increasing annual silver surpluses, without continued strong investment
demand, can make the price of silver fall quite rapidly. I would like
to repost this graph to show the surplus-deficit forces.

According
to GFMS (now Thomas Reuters), there was a silver deficit until 2003.
During this time of supposed deficits, the price of silver remained in
the $4-$5 range. However, when the deficits disappeared and the
surpluses began, the price of silver magically began to rise. The first
year silver was no longer in a deficit (2004) it hit an average price
of $6.67 an ounce. Then in 2005 it reached an average of $7.32, $11.54
in 2007, $13.38 in 2008, $14.98 in 2009 and so on and so forth.

The
white line on the graph represents the average annual price of silver.
As you can see the price is heading higher in parallel with the
so-called rise of silver surpluses. These silver surpluses have been
absorbed by institutional and retail investors. The notion that a
structural deficit in the annual silver supply would push the market
price of silver higher, failed to materialize prior to 2003 when actual
deficits took place.

So, here we can see that the rise in the
price of silver since 2004 has less to do with industrial demand and
more a factor of increased silver investment.

Silver Investment Demand: Just Getting Started
Precious
metal enthusiasts who are concerned about whether or not silver
investment demand will remain strong in the future… shouldn’t be. From
the data I am gathering, we are just beginning to see how large of a
force silver investment demand will be in the upcoming years.

One
of the more notable gauges of increased silver investment over the past
decade, has been the growing demand of official government coins. In
2002, total supply of official government coins and medals were 31.6
million ounces. However, by 2011 this grew to a staggering 118.2
million ounces or a gain of 274% in just nine years.

The
four largest selling official government coins are the U.S. Silver
Eagle, the Canadian Silver Maple, the Austrian Silver Philharmonic and
Australian Silver Koala & Kookaburra. These four government mints
produced 101 million silver ounces of coins & medals (majority were
coins) or 85% of the world’s total in 2011.

Even though the sales
of these official coins dropped off during the first part of year,
strong demand has returned in the second half. For instance, there was a
32% decline in Silver Eagle sales in the first six months of 2012 when
17.4 million were sold compared to 22.3 million during the same period
in 2011. However, if we look at the chart below we can see that 2012
Silver Eagle sales are now only down 18% compared to the same time last
year.

There
was also a similar decline of Silver Maples in the first half of 2012.
From January to June, sales of Silver Maples fell 32% compared to last
year. Nevertheless, when the Royal Canadian Mint releases its third
quarter report, we will more than likely see an increase of its Silver
Maple sales in percentage terms compared the first half of 2012.

Another
interesting trend taking place and shown in the chart above is the
amount of Silver Eagles sold compared to Gold Eagles. Compared to last year, Gold Eagle sales (-36%) are down twice as much in percentage terms than sales of Silver Eagles (-18%).
Furthermore, the U.S. Mint has sold 53 times more Silver Eagles than
Gold Eagles in 2012 (the ratio in 2011 was 40-1). Thus, retail
investors have been purchasing 33% more Silver Eagles than Gold Eagles
compared to the same period last year.

Even though the four
countries listed above produce the lion’s share of official government
coin sales, there is another country that has big plans to change their
ranking in the future.

China: Big Plans For Future Silver Investment
China has been patient by only producing 600,000 (annually) of its one ounce Silver Pandas for nearly a decade. However, last year China decided to increase its mintage of its 2011 Silver Panda from 600,000 to 6 million…
and in 2012, they plan on increasing it to 8 million. Why the sudden
10 fold increase of their Chinese Silver Panda sales in one year?

Well, according to Jim Orcholski who runs J & T Coins LLC Blog.com:

The
main reason the mintage of these coins was increased so much starting
last year is that it became legal in 2011 for Chinese citizens to own
silver coins.

The
Chinese government is also eager to make Silver Pandas as popular as
American Silver Eagles. Pandas are obviously very popular within China,
and it’s not known how many of the Silver Pandas are exported and how
many are sold within the country.

For the Chinese
government to make good on its promise to popularize its Silver Panda to
equal that of the American Silver Eagle, they will have to increase
their annual mintage substantially. In 2011, the U.S. mint sold nearly
40 million Silver Eagles. If the Chinese plan on surpassing this record, I would imagine they may set their goal on producing 50 million annually.
This may not be that tough of a challenge due to the fact that the
China has three times the population of the United States, and their
citizens are becoming keen buyers of the precious metals.

Here we
can see evidence, that the demand for official government silver coins
has gone exponential over the past decade. However, this is only one
part of the overall silver investment picture.

Silver Investment Demand vs. Industrial Applications
One
of the more tiresome, boring and overused analysis in determining the
future price of silver, is the forecasted consumption of silver in
industrial applications. There is this notion that if the world’s
economies slide into a severe depression, that the demand for silver
will fall as industrial activity declines. Thus, we would have much
lower silver prices… that is, according to these analysts.

Hogwash.
We now know by the data provided in both the surplus-deficit and
official government coin charts above, it has been investment demand
that has been the overriding force in determining the market price of
silver, not industrial. Again, if industrial demand didn’t move the
price when we had real annual silver deficits in the past, why on earth
would we expect it to affect the price in the future.

To get a true picture of the massive increase of silver investment during the past decade, take a look at the chart below:

The
grey bars in the chart above show how much silver was consumed on an
annual basis by industrial applications while the blue represent coin
& medal demand and the orange denotes implied net investment. These
figures do not include silver consumption in either photography,
jewelry or silverware. Below is the data for the following years:

By
adding the silver demand from official coin-medal and implied net
investment together, we get the total amount for the year which was 31.6
million oz in 2002. Thus, total world silver investment in 2002 was
just a mere 9% of the silver consumed by industrial applications.
However, by 2011 global silver investment jumped to 282.2 million oz
accounting for 58% of silver used by industrial applications.

The World Silver Survey calculates Implied Net Investment
by subtracting total fabrication from the total global silver supply.
In 2011, global silver supply (mine & scrap) was 1.04 billion oz and
total fabrication (industrial applications, photograph, jewelry,
silverware and coin & medal) consisted of 876 million oz leaving a
difference of 164 million oz as implied net investment.

According
to the 2012 World Silver Survey, physical bar investment accounted for
98 million oz of the 164 million oz implied net investment total in
2011. Here again, we can see from the two charts above, institutional
and retail investors have been the predominant force in pushing silver
from an average of $4.60 an ounce in 2002 to averaging over $35 an ounce
last year.

Even though silver has risen nearly 75% per year for
the past nine years… this is just the beginning of the price moves to
come. Why? It looks like something quite fishy is taking place in the
precious metal exchanges.

U.S. Silver Exports: Putting Out The LMBA Fire?
In
the past, investors were happy to fork over hard earned money for paper
promises of gold and silver. However, that trend seems to be reversing
quite rapidly. After the collapse and bankruptcy of several large
commodity brokerage houses along with the supposed ongoing threat that
allocated and unallocated gold and silver accounts have been
rehypothocated (stolen), investors are now demanding delivery of
physical metal instead of paper I.O.U.’s.

Furthermore, a week
doesn’t go by without an article written about government gold
repatriation or whether or not a central bank actually holds the very
gold (or rights to the gold) that is shown on its balance sheet. When
we add up all these factors, who can blame the investor for wanting to
acquire the real physical asset?
One country that is scarfing up as much of the precious metals as it can, is China. According to the research done by Jim Willie, massive amounts of gold (official & unofficial) have been shipped from West to East (mainly China) in the past several years.
One place for an investor or a sovereign country to take delivery of
large quantities of gold and silver is from the LBMA located in London —
the largest metal exchange in the world.

Rumors are floating
around the precious metal blogosphere that wholesale physical supplies
of gold and silver are extremely tight, even though so-called “official
statistics” may state otherwise. Nevertheless, there is one “official
source” that may help confirm these rumors.

In 2011, the USGS
published that the U.S. exported 19 metric tonnes of silver bullion to
the United Kingdom during the entire year — a very miniscule amount
indeed. However, something very interesting occurred starting in May of
this year. In May, the U.S. exported 19.4 metric tonnes of
silver which was more silver than was exported during the twelve months
in 2011… and this is just the tip of the iceberg.

If we
look at the chart below, we can see just how much silver is leaving the
shores of the U.S. and being shipped to the United Kingdom in 2012:

In
the upper right hand portion of the chart you will see the quantity of
silver exported each month to the United Kingdom. The United States
exported 37.3 metric tonnes of silver in June, 169 metric tonnes in July
and 65.3 metric tonnes in August. In just four months, the U.S. has
exported 291 metric tonnes of silver to London (LBMA).

There are two significant trends taking place that are represented in the chart above. First, the United States has exported more silver bullion in the first seven months of the year than it did in all of 2011. Secondly, silver
bullion shipped to the United Kingdom rose from 3% of total U.S. silver
exports in 2011, to a staggering 42% of the 700 million oz exported so
far this year.
Why has there been such a large
increase of silver bullion exports to the United Kingdom over the past
few months? Could it be that the English have suddenly ramped up solar
power manufacturing… or may it be due to an abrupt increase in foreign
demand for their formal silverware? I highly doubt it.

More likely than not,
the large silver bullion exports to the U.K. have been utilized to help
meet the insatiable physical silver bullion demand taking place on the
LBMA.As the old saying goes… where there is smoke, there’s probably a great deal of silver paper on fire.
If
we consider the strong investment demand forces described in the
examples above (present & future), I hate to say, investors should
probably brace themselves for much higher silver prices in the next
several years. Yet, investment demand is only one part of the powerful
forces that will push the price of silver over $100 an ounce.

Will Higher Silver Prices Bring On More Future Mine Supply?
There
is this economic principle that states increased demand and higher
prices of a commodity or product will eventually bring more supply to
the market. While this has normally been the case during the history of
mankind, the world will soon be hit by a rude awakening.

Gold and
silver mining is extremely energy intensive. Back in the good ‘ole
days (late 1800′s & early 1900′s), the majority of energy used in
mining was human and animal labor. This somewhat primitive method of
extracting the precious metals from the ground worked fine as the ore
grades were extremely rich and confined to narrow veins. But, as the
best quality mines were played out and the average ore grades started to
decline across the world, more energy was needed to mine and process
the ore.

The mining industry solved this problem by building
bigger machines that could move larger amounts of ore to compensate for
the declining ore grades. Eventually, animal and human labor was
replaced by earth moving machines. For a while, bigger worked fine
until the mining industry demanded… GARGANTUAN.
Caterpillar meet
this challenge by designing and building the Model 797F Haul Truck — one
of the largest mining haul trucks on the planet:

The
797F is the epitome of massive on all scales. It is nearly 50 feet
long and can haul 400 tons of ore (800,000 lbs). The tires specifically
designed for the 797F, are 13 feet tall and cost $42,500 a piece. The
797F is so large, it takes 12 semi tractor trailers to ship the truck to
the mining site for final assembly. Included in the list of parts is
its tiny 1,000 gallon fuel tank (sarc.).

Here’s the good part.
The Caterpillar 797F is so large, it averages 0.3 mpg and consumes
roughly 65 gallons of diesel per hour. Because of its huge cost, the
797F is normally run 24 hours a day, 365 days a year, stopping only for
scheduled maintenance. If we calculate its annual fuel consumption
based on conservative figures, the 797F can burn nearly a half a million
gallons of diesel a year.

Again, the reason why the mining
industry transitioned its machines from bigger to gargantuan was to
offset the decline of ore grades that went from very rich to extremely
poor. Before I tie together the future energy picture and its impact on
silver mine supply, let’s look at some actual data on declining ore
grades in the top silver miners.

Putting Actual Data Behind The Decline Of Ore Grades At The Top Silver Miners
In
all my research on the Internet, I have yet to come across an
individual or publication that has provided the public with actual data
on the overall decline of the average ore grade in the silver industry…
well that is, up until now.

When I gathered the data to produce
the chart below, I had no idea of what the final outcome would be.
However, as I tallied the final figures, I was completely surprised by
the results:

For
the sake of clarity, an ore grade is the amount of silver contained in
the ore before mining. The average yield is the actual amount of silver
the company produces when it processes a tonne of ore.

Here we
can see that in just six years, the top silver miners average yield has
declined 34% or 5.6% per annum. In 2005, the top 6 silver miners
produced on average 13 ounces of silver per tonne of processed ore, but
by 2011 their average yield dropped to only 8.6 oz per tonne.

Moreover,
in 2005, the top 6 silver miners produced 123 million oz of silver by
processing 9.4 million tonnes of ore, but just six years later they had
to process 15 million tonnes of ore to generate 129 million oz of
silver. Subsequently, the net result was a mere 5% addition of silver
production by a 60% increase of processed ore.

RULE OF THUMB: As ore grades or silver yields decline, it takes more energy to produce the same or less metal.
The
mining companies included in the calculation above were Fresnillo, BHP
Billiton’s Cannington mine, Pan American Silver, Hochschild, Polymetal
and Hecla. Some of these silver miners were chosen over other
companies who had higher annual silver production due to the
availability of data as well as consistency of its reported annual
silver yields.

I omitted Coeur d’Alene because its annual silver
yields were all over the place due to new mines be added and old mines
dropping off throughout the years in which I collected the data stream.
Truth be told, Couer’s average silver yield in 2011 was only 4.2 oz per
tonne of processed ore. In that regard, the addition of Coeur’s silver
yield data into the mix would have made the overall declines even
worse.

Furthermore, the companies and the one individual mine
(Cannington) were chosen as they belong into the category of primary
silver mines. The authors of the annual World Silver Survey did not
include Hochschild or Polymetal in their example of primary silver
miners, although I allowed them due to several reasons.
Fresnillo
is titled as one of the largest primary silver miners on the planet.
However, in its first half 2012 report, Frenillo’s revenue break down
was 51% from gold and 45% from silver. Fresnillo is now actually making
more revenue mining gold rather than silver.

On the other hand,
in Hochschild’s first half 2012 report, the company received 70% of its
total revenue from silver and only 30% from gold. In my book,
Hochschild is more a primary silver miner than is Fresnillo.
Polymetal
was also selected due to the fact that its two primary silver mines,
Dukat and Lunnoye produced 17 million oz of silver at an average yield
of 9.8 oz per tonne in 2011. Furthermore, Polymetal’s first half
revenue were split equally at 48% each from gold and silver. So, in
reality, Hochschild and Polymetal are just as much a primary silver
producer as is Fresnillo.

I only included data from primary silver
mines in the companies listed above. Even if a company received
additional silver production from one of its primary gold mines, I
elected not to include these figures as it would have skewed the results
in determining the true decline rate of yields in the primary silver
mining industry.

Lastly, there is this practice in the mining
industry to process lower grade ores as the price of the metal
increases. Some mines actually put a mark locating the lower grade ore
within the project for the miners to remove during the year.
Furthermore, mines will process lower grade ores and tailings that they
chose not to do in the past when prices were lower. However, this does
not really alter the overall average annual decline of yields in the
silver mining industry shown in the chart above.

For example, both
the Fresnillo and Cannington mines have seen substantial declines in
their average silver yield in the past six years. This was not due to
mining and processing lower grade ore to take advantage of higher metals
prices, rather it was due to the mine being played out and finally
reaching the reserve base ore grade stated in their production reports.

Silver = Stored Energy
One
factor that most precious metal investors fail to comprehend is the
energy nature of silver as a store of value. Of course they understand
that silver and gold are real money and in that vein… they hold a
certain amount of perceived or intrinsic value. Unfortunately, they
fail to realize that the most important value attached to an ounce of
silver, is the stored energy contained in each coin.
A monetary
value was attributed to an ounce of silver or gold based upon the amount
of energy and capital it took to mine the metals as well as its degree
of rarity. During the Roman times when silver was mined by human and
animal labor, the monetary value was given based upon the amount of
labor (energy) it took to produce a one ounce coin. Basically, the free
market determined the prices of goods and services in silver coin to
their relative energy value.

For example, if it took on average
four hours of labor to produce an ounce of silver during the Roman
Empire, that coin was exchanged for a good or service of equal energy
value. In this example, a city laborer working a twelve hour work day
might receive 3 silver coins as pay. I realize I am making a basic
assumption here, but this is how a monetary value was given to gold and
silver. Of course, the market would figure out on its own the value of
an egg, chicken, horse or a cow for example. But, in the end, the more
energy that went into producing a good or service, the more silver or
gold coins it took to equal the energy transaction.

Once an
investor realizes this energy value as it pertains to silver (or gold),
you will then understand how important energy plays as a role in the
production of the metal as well as its role in the overall economy.
Thus, as the energy supply of a society increases, so will its
production of gold and silver as money (if the society uses precious
metals as money). On the other hand, as the society experiences a
decline in its energy supply, so will the mine supply of its gold and
silver.

The mining industry has been banking on the continued
growth of the global liquid energy supply to be able to increase the
production of gold and silver. With the knowledge that the peak of
conventional oil production is now upon us, new hope has been placed on
the supposed SHALE ENERGY PARADIGM to be its energy savior.

How The Shale Energy Boom Will Turn Into A Huge Bust
As I mentioned before in my article WHY IS THE FUTURE SUPPLY OF SILVER MORE AT RISK THAN GOLD,
the world has been watching closely the new shale energy boom taking
place in the United States. Why? If the United States shale energy
model proves successful, then the rest of the world believes they will
be able to recreate the same results in their respective countries.
It
is due to this very reason why the Shale Oil & Gas Industry have
spent a great deal of time and money pumping out a positive PR campaign
to convince the U.S. public and the world that shale energy is indeed
our next energy savior. They state that shale oil and gas can supply
the United States (and the world) with cheap energy for the next several
decades.

While it is true that production volumes in both shale
gas & oil have risen quite substantially in the U.S. over the past
few years, there seems to be a dark side of the equation that the
industry would like to keep a secret. However, to keep the length of
this article from getting out of hand, I will only focus on the shale
oil aspect of the industry.

The
month over month change of reported wells are shown by the blue bars.
Here we can see that from early 2006 to the end of 2008, additions of a
modest number of shale wells allowed the overall production per well to
increase significantly (shown by the black line). Nevertheless, since
2008, the rapid increase of monthly net additions of new shale wells has
masked the high depletion rates while allowing only a modest increase
of overall production from the Bakken.

According to Rune Likvern:

The wells normally have a high production at start up that rapidly enters into steep declines.

To facilitate growth in total production an accelerating number of wells needs to be brought into production.

To sustain a plateau requires a continual addition of a high number of producing wells.

Basically,
the shale oil players have to run faster and faster just to stay in the
same place. This practice has allowed the increase of oil production
from the Bakken Field in North Dakota, but it has done so at a huge
cost.

In another chart developed by Likvern, we can see the estimated cumulative net cash flows for shale oil in the Bakken:

The
chart reveals the ugly truth that the shale oil operations have
accumulated an estimated $14 billion in negative cash flow since January
of 2009. Here we can see that shale oil players in the Bakken have
seen an accelerated need for additional sources of capital not provided
by their operations alone. How long can they continue this losing
battle?

The big energy companies such as Exxon-Mobil,
Conoco-Phillips and Chevron-Texaco are cash cows. They are so cash
rich, they have been taking a portion of their positive cash flow and
buying back their stock. So, why are these shale energy companies
either suffering from negative cash flows or are being loaded down with
huge amounts of debt? Could it be that the shale energy industry is
really not a model that can be commercially viable long term?

To offer a fair and balanced analysis of shale energy, I have to provide a few bullet points on wonders of shale gas. If
you think the information coming from the North Dakota Bakken Field is
disappointing, the data being released about the shale gas industry is
even worse.

Some Pearls Coming From the Shale Gas Industry
1) The USGS recently announced massive downgrades of U.S. shale gas reserves

2)
Break-even price for typical shale gas player (over the life of the
well) is at least $6-7 mmbtu. With the current price of natural gas at
$3.50 mmbtu… we can only imagine the hemorrhaging taking place on their
balance sheets.

3) Geologists at
Labyrinth Consulting have examined 9,100 of the 15,000 wells in the
Barnett shale play using production data filed by the operators with the
Texas Railroad Commission and found that less than 6% actually met
minimum economic thresholds.4) Forecasted revenues to land owners were a mere fraction of what was promised: a)The wells at DFW airport have come in with dismal returns. (8) They
never performed up to original projections. Chesapeake Energy
needed 2.0/Bcf to break even. The wells have produced .9/Bcf .b)The
University of Texas at Arlington saw revenues peak at approximately $7M
with a mere 6 wells on campus to plummet drastically in a matter of
months. Revenues in 2010 were down to $800K even though there were now 22 wells on campus.5)
To acquire additional capital to continue the Shale Gas Treadmill,
companies drilled a few wells to prove up new large reserves. They took
these supposed reserves and pawned them off on larger companies such as
BHP Billiton, Encana and BG Group.6)
In 2012, the shale gas party ended when in the first half of the year,
over $8 billion dollars of impairment charges of shale gas investments
were written of the balance sheets of major oil and gas companies. BHP
Billiton won the grand prize by suffering a $2.5 billion impairment
write down from its initial $4.75 billion shale gas investment it
purchased from Chesapeake the prior year.7)
Wall Street firms have made a killing putting together these sort of
lousy energy deals. Without Wall Street, the Shale Gas Treadmill would
not have the means to continue. (information from [2] Art Berman, [3-4] Deborah Rogers at the EnergyPolicyFourm.com)
If
we have an open mind and are able to process the basic information on
shale oil & gas provided above, we should come to the conclusion
that shale energy will not be the savior of our future energy needs. It
may provide additional energy production for a brief period of time,
but it is not a viable energy source for the long term.

Quick Wrap Up & Connecting The Dots…
Investment
demand has been and will continue to be the driving force behind the
rising price of silver. Analysts who point to the growing so-called
annual surplus of silver as a negative factor, have been brain-dead
since 2004… the year both the surpluses began as well as the time when
the price finally broke above its decade level in the $4-5 range.

One
area that denotes increased investment demand is “official coins”
produced by the government mints. In just nine years, official coin
demand has increased 274% from 31.6 million oz in 2002 to 118.2 million
oz in 2011. Even though China is currently ranked as the fifth
country in official government coin production, they plan on making
their Silver Panda as popular as the American Silver Eagle. To do so,
they may set a goal to increase their mintage of their Silver Panda to
over 50 million annually.

According to the data provided by the
2012 World Silver Survey, total global silver investment demand has
risen from only 31.6 million oz in 2002 to a staggering 282.2 million oz
in 2011. As world economic fiat based monetary system continues to
deteriorate, investors are taking delivery of physical silver rather
than holding on paper contracts that may not be backed by any metal
whatsoever.

This has created a run on the LBMA bank… the largest
metal exchange in the world. Evidence of this can be seen by the huge
increase of U.S. silver bullion exports to the United Kingdom. In 2011,
the U.S exported a mere 19 metric tonnes to London. However, in just
four months (May-Aug), the U.S. has exported 291 metric tonnes to the
LBMA vaults in the U.K..

The top 6 silver miners in the world have
seen their average yield decline 34% in six years from 13 oz per tonne
in 2005 to only 8.6 oz/t in 2011. As ore grades and yields decline, it
takes more energy to produce the same or less silver. The metal
analysts are forecasting continued growth of annual silver production
for the next decade and beyond. To be able to grow silver metal
production, the world will have to grow its liquid energy supply.

As
the world is beginning to wake up to the fact that conventional oil
production is peaking (or has already), shale gas & oil have been
touted to be the new energy savior to keep business as usual going for
several more decades.

Production statistics and financial data
coming out of the Bakken oil field and the Shale gas industry are quite
depressing to say the least. While the big energy companies are cash
cows, the shale energy players are experiencing large negative cash
flows or are saddled with debt. The hyped Shale Energy Boom will more
than likely turn out to be a Huge Bust.

Once the world ‘s liquid
energy supply starts its inevitable decline from its current plateau,
annual silver metal production will decline as well (or may follow soon
thereafter). Metal analysts who are forecasting a glut of silver coming
onto the market in the following years are also suffering from the
ability to process information correctly. There will be no silver glut
and there will be no silver available when the world’s fiat monetary
system finally dries up and blows away.